Q2.

Not long ago, the Federal Communications Commission (FCC) implemented

“local
Number portability” rules allowing cellular phone consumers to switch cellular providers
Within the same geographic area and maintain the same phone number. How would
You expect this change to affect the Rothschild index for the cellular service industry?
Answer
Rothschild Index is a measure of the elasticity of industry demand for a product relative to that of an
individual firm. R= ET/EF
ET is the elasticity of demand for the total market and EF is the elasticity of demand for the product of an
individual firm. R has a value between 0(perfect competition) and 1(monopoly).
With number portability the services of the various providers are now close substitutes to each other. It
is common among customers to switch providers when they see another provider is offering the same
service at a lower price. This makes the demand for individual cellular service providers more elastic.
Local number portability is unlikely to affect the demand for the industry as a whole. Based on the
equation of Rothschild Index ( R= ET/EF) when the elasticity of demand for individual firm increases and
that of the industry remains constant, the index will decrease in value. Thus the local number portability
rule causes a decrease in the Rothschild index for the cellular service industry.